Not long back the young Pakistani girl Malala Yousufzai was in the news with the launch of her book and narrating her struggle and the need for education for girls in Pakistan. The majority of Pakistani's were proud of the bravery of the young girl and while her endeavours will raise awareness of the issue of education for girls in the North West of Pakistan, there is no doubt that in some very conservative quarters there is a Taliban type sentiment that educating girls is counter productive.
Around the same time the debate about education and what Malala Yusufzai was promoting came to a head with a discussion with a person who I would best describe as a Taliban sympathiser. I shall simply call him TS and the dialogue went like this.
"This girl should not be allowed to appear on TV, especially in England (he pronounced it Ing-land)she is bringing shame to our country."
"How is she bringing the country to shame?" I asked.
"We should only teach girls home economics, to make them better mothers and wives." TS fancied he was a little liberal than the Taliban in his position.
"Well why not a doctor or a teacher, or any profession." I enquired.
"How can you have your daughter working in a public place, seeing men who are not related to her, and with it come all the vices of the West?" TS was getting worked up.
"What vices? Look TS if your daughter has a good upbringing then she will up hold the values that are ingrained in her." I offered my conciliatory view.
"You do not know these vices." TS asked accusingly.
"Education is not a vice." I answered.
"Perhaps not, but then the girl is working, comes in contact with men, they take her phone number call her for work and then slowly they tempt her to this dating thing and next your daughter's reputation is in the gutter and no one will marry her." TS had figured out the whole script.
"Are you saying that girls should not have mobile phones?"
"Actually no they should not. Its an evil in their hands." TS smiled.
"This is character assassination of all women which logically one cannot accept." I told him.
"OK lets stick to the job thing. So you do not want your daughter to be a doctor because she will meet men?"
"Absolutely not." TS answered.
"TS who do you love the most in the world?" I asked.
"My mother ofcourse!"
"OK not lets assume God forbid your mother is seriously ill and needs to go to a hospital and if as you say girls should not be educated it is natural then only a male doctor will examine your mother. Right?' I asked TS.
"What are you suggesting?" TS was getting a bit aggressive.
"Well if you do not want your mother to be touched or examined by a male doctor then the only choice is a female doctor, who obviously will be someone's daughter. So how can you be against educating women?" Even though I am not suggesting education for women should only be to become doctors, but for the limited closed minded thinking of TS I took the narrow route.
"See this is the problem with you Western minded Pakistani's you twist something so simple of education and make it too complicated by giving these examples which are all theoretical. My mother, may she be blessed, is in good health so why should i think of what you are saying." TS was getting even more aggressive.
"TS may your mother never be sick but just hope when she does go to a hospital she is not having to be examined by a male doctor. My suggestion pray someone else has had an open mind enough to educate their daughter to be the doctor who will examine her." I was smiling.
TS stood up, glared at me and walked out. Lucky for me he did not come back with a gun and shoot me for being an infidel.
Thursday, June 19, 2014
Monday, June 16, 2014
Pakistan: Negotiating with Militants.
The recent spate of attacks by the Pakistan Taliban, most notable of which was the attack on Karachi Airport, backed with a promise by its leadership of more attacks, scuttles any belief that negotiating with the Taliban and other militant elements is a senseless position. Imran Khan, the leader of the PTI, and who govern the province where the Taliban and co have most of their activities, was for a few years adamant that the a negotiated settlement with the Taliban was not only possible but desirable. As noble as the desire for peace and negotiating it across the table sounds the idea of negotiating with someone who says, "if i do not get my way I will fire my guns", can only be a non starter. In the wake of the attacks even Imran Khan has been quick to back the military action against the militants and he must realise that negotiating with the Taliban and co is not a feasible position.
In Pakistan we have been stressing we are a democracy, and for the first time in its checkered democratic history, the incumbent government handed over power after losing in the elections to another civilian government without the ignominy of the military stepping in. Pakistan has a parliament and has elected representatives, no matter how weak the democracy may seem, so negotiating with a power group that has not got any representation from the people through the democratic process is like admitting that political groups who are well armed can hijack the 'democratic' process whenever they wish to. The statement by the Taliban that as the peace talks were faltering they have decided to take revenge and there will be more attacks is simply saying that if we do not get our way we will kill you and kill a great deal more innocent people.
Imran Khan and his party should wake up and if they do want to make a difference, and a positive difference, they should simply say, 'so long as you carry a gun there cannot be a discussion'. This has to be non-negotiable, and then it as to ask what is there to negotiate? Taliban was the Shari'ah law in the country, well there already are Shari'ah laws as approved by the Parliament in force in the country! They want a society where selective education of their flavour is only allowed; ask them to win enough parliamentary seats and with a majority in the National Assembly pass the laws they want. In essence one has to wonder when one says we will talk to the Taliban one had to wonder that in a democratic system, as rickety as it may be, what can you talk to them about?
The audacity of the recent attacks, and the targeting of military targets by the Taliban has infuriated the Pakistan Army, perhaps more so that the attackers were foreign nationals who form the cadre of the Taliban militant force also. The moment has really come for Pakistani politicians and the public to reject the politics of violence and there has to be no giving in to talks where the basis of a discussion is enforced through guns. The only talks that can be held with the Taliban is their disarmament and to only give them the option to be a political party that can try its luck at the polls. The politics of division especially on religious grounds where each may claim to be 'better Muslims' then others is not in the spirit of Islam, where tolerance is the creed and not the intolerance that these militants espouse.
Imran Khan, Nawaz Sharif and the other parties within the Parliament should all agree to a single plan on the issue of terrorism and militancy. There has to be a national program for also educating the masses on the real issues of national reconstruction and how the rigid position of the militants is against the very edifice of statehood. Any change that must happen to the social and political fabric of the country must happen through the democratic process and not through the power of militancy.
Wednesday, March 5, 2014
ICC Reorganization: A case of faulted logic.
India, Australia and England have created a triad of exclusivity to essentially take over the administration of cricket world wide. Each has their own logic to why they have worked secretly for months to hijack the cricket world and their logic is nonsensical to say the least. It ignores the welfare of the sport, scuttles the work to create a wider worldwide appeal (why else would we have T-20), and tries to create a Security Council type of structure which can hardly benefit anyone other than the three countries mooting this hair brained idea.
England's argument would be simple; the inventors of the game, the home of the ICC till it was moved to Dubai, and essentially the people who taught the rest of the world the game of cricket and its bizarre rules that outsiders take a while to understand. I always argued that apart from the commercial reasons for colonization the purpose of the British Empire was to teach the world their sports so in time the former colonies would beat them at the very games they were taught. Need I say more than England's performance in Soccer, Rugby and Cricket? So other than a sense of nostalgic history England's claim to be in the elite Group of Three is without any basis.
Australia, perhaps because of the longest run as the world's premier Test playing nation and one day side could lay better claim to an exalted position. However, performance on the field does not mean you end up with a position of power in the ICC other than what other nations would have. Besides when the fortunes of performance vane, as they eventually do, does the position of power be surrendered? Just because China dominates, say diving in the Olympics does not mean the power of the sport administration should shift to Beijing? By the argument of performance, South Africa has shown its mastery in test and one day cricket in recent years, why are they excluded? Both Sri Lanka and Pakistan have carved out their own short periods of supremacy on the cricket pitch; so do we end up with a power shifting structure that changes with each world cup?
India's claim to be in the elite club and control the destiny of cricket is perhaps the most illogical. Its argument that it generates 80% of the viewership of the sport on TV media it deserves the right to be in the Group of Three is contradictory. While it argues this position on the world scene, its own Premier League (IPL) is based on a more equitable formula of revenue distribution where the last placed club would get perhaps 50% of what the winning club would get, but more importantly, this is based on a formula of the number of appearances and matches you play. If India's argument is based on viewership, considering its massive population, then asking for a different revenue sharing formula for matches that India plays would be fair, but to want a bigger share of ALL worldwide revenues even when India is not playing a series is arrogant to say the least.
Another problem with India having the power within the ICC rests upon the state of cricket administration within India. To say that Indian cricket administration within the country is rotten to the core would be an understatement. The scandals involving IPL and members or relatives of members of the BCCI board are well documented. Why would the world cricket administration allow these rotten corrupt scoundrels into their portals of power? Will the code of ethics of the ICC be totally ignored?
The fact that India offered side deals to Bangladesh, Pakistan and Sri Lanka where by saying that revenue sharing on bilateral series will be open for discussion and distribution/adjustment from India's share is really a form of bribery to get into the Group of Three.
I would venture that South Africa would also have been offered some treats on the side to accept the new structure. But stop and ponder, if all the other countries stood together and told Australia, India, and England to pack their cricket bags and play amongst themselves, I doubt that it would have made a huge difference to the world of cricket. In the long run cricket would remain healthy as South Africa, Sri Lanka and Pakistan combined have enough of a pull to keep their own audiences entertained. Sure an South Africa-Australia series would be missed but by the same token Australia beating England and India each time would get boring too.
Sadly the future of cricket will be scuttled for ever by the problems that three countries will bring to the ICC and none of the other boards see that.
Monday, March 1, 2010
On haircuts and debt settlements.
There has been recent talk, some of it unsubstantiated press rumors, that Dubai World, the debt laden Government Related Entity of Dubai, has been contemplating, on the advice of its consultants, to consider as much as a 40% haircut on the debt and repayment of the balance over seven years with no interest. Needless to say, banks had two reactions ignore the rumor, (hard to do in the present day) or just balk as the audacity of the whole idea. Haircuts and debt repayments only happen to work, if that is the word to use, when there is literally no hope for any possibility of the principal debt ever being repaid. If the rumor was an attempt to test the waters, then the consultants need a fair dose of understanding that you hold a dialogue with the banks and do not pretend to have a conversation through the rumor mill, this always backfires.
While I am not privy to the discussions or indeed the people who are making these decisions, so what I venture our is conjecture and my recommendations may well be off the mark; yet as a three decade resident in the financial world of UAE, and an ardent well wisher for the country I would imagine a solution oriented approach is what is needed. What are the options ahead for this debt settlement?
In the first place we must be clear that the entire extent and complexity of the Dubai World debt is not entirely public and in similar vein neither is the possible cash flow profile over the next few years really known to the general public. Thus, if a seven or five year repayment is suggested it goes without saying that the cash flow projections will have to match this settlement profile. Keeping this in mind I would suggest the following.
1. When considering a haircut of any amount there has to be a clear understanding that this is seriously hurt the image and the standing of not only Dubai but also UAE within the financial community. Even if such an offer is accepted it will be with the gesture and lack of goodwill to provide additional funding in the future even when things are better. Bankers have a long memory and will remind you of their losses from decades back. Any haircut that is suggested has to be tied to an incentive. My suggestion would be to offer the banks a 70% settlement with the balance 30% to be strucurted as a Zero coupon bond with a long maturity and the caveat that this 30% would be exempted from payment under a formula for early payments. Thus if the 70% is to be paid say in seven years then for each year this amount is paid earlier there is a percentage of the 30% zero coupon bond that is written off. This creates an incentive for DW to pay early to get the discount. Ofcourse, the 70% should carry a new negotiated interest rate.
2. While legally there is the possibility of a bankruptcy to be considered and a financial 'guru' even said to me that there is no harm in such a route being explored and mentioned the examples of Enron, Japan Air Lines and many others. My simple response is that those were not GRE's and were joint stock companies with a broad public shareholding, DW's default will in the end be seen as a moral default of the entities behind it and this is not an option that should be even discussed.
Then the smart one's will ask are we not in a catch 22 situation?
In a sense yes, but then we have to consider long term solutions. Here is what I would do.
1. Within the UAE finance structure the Dubai Government should consider a long term Treasury Bond issuance program. These bonds should not only be seen as a monetary measure to deal with the deficit but also to restructure the debt of the GRE's in a manner similar to what many governments around the world do. US Treasuries are issued all the time and new issues retire old bonds and the cycle goes on under a long term program. It is precisely the lack of this program that has resulted in the funding of long term project needs with short term borrowing resulting in this mess.
2. The current Federal and Abu Dhabi Government assistance should also be rolled into this Treasury Bond program and perhaps even seek a tier one issuance with the Federal Government or Abu Dhabi government subscription of the earlier issues. This will bring much needed liquidity into the trading of these Treasury Bonds.
3. The UAE Central Bank to support such a program in the classification of these as investment securities rather than as simply loans to Dubai Government.
4. Set out the assessment of the cash flows of Dubai World and seek an debt retirement program which is realistic and not based upon the hope of things improving. It will mean that more detailed information on the cash flow and asset profile of the company and then to see how this can be managed to meet the obligations. With the backdrop of a Treasury Bond program the pressure to come up with three, five or seven year debt repayments will be overcome as the Treasury Bonds, through their liquidity and re-issuance programs will be able to manage a more orderly debt retirement rather than a pressured situation as we sit in today.
The reality is that any settlement of this debt has to be realistic in its scope and intent; failure to recognize the sensitivity of the situation within the financial world would have repercussions that might be hard to deal with. It is therefore vital that for the good the country's standing a positive approach is important in this situation. I am not convinced that haircuts and interest waivers is the solution, this is not giving the right message.
While I am not privy to the discussions or indeed the people who are making these decisions, so what I venture our is conjecture and my recommendations may well be off the mark; yet as a three decade resident in the financial world of UAE, and an ardent well wisher for the country I would imagine a solution oriented approach is what is needed. What are the options ahead for this debt settlement?
In the first place we must be clear that the entire extent and complexity of the Dubai World debt is not entirely public and in similar vein neither is the possible cash flow profile over the next few years really known to the general public. Thus, if a seven or five year repayment is suggested it goes without saying that the cash flow projections will have to match this settlement profile. Keeping this in mind I would suggest the following.
1. When considering a haircut of any amount there has to be a clear understanding that this is seriously hurt the image and the standing of not only Dubai but also UAE within the financial community. Even if such an offer is accepted it will be with the gesture and lack of goodwill to provide additional funding in the future even when things are better. Bankers have a long memory and will remind you of their losses from decades back. Any haircut that is suggested has to be tied to an incentive. My suggestion would be to offer the banks a 70% settlement with the balance 30% to be strucurted as a Zero coupon bond with a long maturity and the caveat that this 30% would be exempted from payment under a formula for early payments. Thus if the 70% is to be paid say in seven years then for each year this amount is paid earlier there is a percentage of the 30% zero coupon bond that is written off. This creates an incentive for DW to pay early to get the discount. Ofcourse, the 70% should carry a new negotiated interest rate.
2. While legally there is the possibility of a bankruptcy to be considered and a financial 'guru' even said to me that there is no harm in such a route being explored and mentioned the examples of Enron, Japan Air Lines and many others. My simple response is that those were not GRE's and were joint stock companies with a broad public shareholding, DW's default will in the end be seen as a moral default of the entities behind it and this is not an option that should be even discussed.
Then the smart one's will ask are we not in a catch 22 situation?
In a sense yes, but then we have to consider long term solutions. Here is what I would do.
1. Within the UAE finance structure the Dubai Government should consider a long term Treasury Bond issuance program. These bonds should not only be seen as a monetary measure to deal with the deficit but also to restructure the debt of the GRE's in a manner similar to what many governments around the world do. US Treasuries are issued all the time and new issues retire old bonds and the cycle goes on under a long term program. It is precisely the lack of this program that has resulted in the funding of long term project needs with short term borrowing resulting in this mess.
2. The current Federal and Abu Dhabi Government assistance should also be rolled into this Treasury Bond program and perhaps even seek a tier one issuance with the Federal Government or Abu Dhabi government subscription of the earlier issues. This will bring much needed liquidity into the trading of these Treasury Bonds.
3. The UAE Central Bank to support such a program in the classification of these as investment securities rather than as simply loans to Dubai Government.
4. Set out the assessment of the cash flows of Dubai World and seek an debt retirement program which is realistic and not based upon the hope of things improving. It will mean that more detailed information on the cash flow and asset profile of the company and then to see how this can be managed to meet the obligations. With the backdrop of a Treasury Bond program the pressure to come up with three, five or seven year debt repayments will be overcome as the Treasury Bonds, through their liquidity and re-issuance programs will be able to manage a more orderly debt retirement rather than a pressured situation as we sit in today.
The reality is that any settlement of this debt has to be realistic in its scope and intent; failure to recognize the sensitivity of the situation within the financial world would have repercussions that might be hard to deal with. It is therefore vital that for the good the country's standing a positive approach is important in this situation. I am not convinced that haircuts and interest waivers is the solution, this is not giving the right message.
Tuesday, January 19, 2010
Is Dubai Inc's debt really $170 billion?
The EFG Hermes report that suggested that Dubai Inc, implying all government related enterprises (GRE) and direct government debt could add up to between US$ 130-170 billion opens up a discussion in ones mind. The report suggests that the current known debt of $96.6 billion could be higher on account of the bilateral loans with local banks. It even cites the possibility that EmiratesNBD bank might have an exposure of $24 billion to Dubai Inc. This prompted me to check the balance sheet of the bank and to glean through the information known in the market and reported from time to time. The related party exposure shown at end of September 2009 in the balance sheet shows DH 45 billion (not dollars) due from possibly Dubai Inc as a whole, and there are deposits etc of about Dh 7 billion. I cannot therefore understand how such an assertion can me made. The entire loan book of the bank is US$ 53 billion of which just retail lending is $ 6.56 billion and then there is the trade finance and corporate lending, which when is adjusted to the over all loan book, by reason of deduction can only end up with the Dubai Inc exposure as $12 billion or so.
In addition, the local banks also have have massive deposits from the government entities and this is a major part of their float that comes to them and is a key part of the interest margin that they earn.
At the time of the Dubai World announcement in November 2009 the total debt estimated, which includes obligations to suppliers and contractors, was around $82 billion. Yes new obligations were taken with the Central Bank and the recent Abu Dhabi assistance which would not, in theory change the position of the over all obligation. Assume that of the $25 billion raised from the Central Bank and the Abu Dhabi assistance, about 75% was used to retire debt and the balance kept in reserve for operations or other maturing obligations, then even the net effect would be that the obligations would go up to US$88 billion.
How this can suddenly be considered a having increased to US$130-170 billion is baffling to me. I have always assessed that of the $82 billion about $60 billion is bank loans or bonds issued in the market and the balance $ 22 billion is creditors like consultants, contractors and service providers. A number of these creditors had either agreed or willing to agree to a reduction in their amounts in exchange for a definite payment plan.
I can buy the argument that if all the grandiose plans that were underway in Dubai were to continue at the same pace as they were in the early part of 2008 then indeed one can argue that the debt obligations of Dubai Inc would have mushroomed. Whether they would have been to the extent of $130-170 billion is a moot question. Intersestingly a couple of weeks back EFG Hermes published a report on the UAE banks and had made not any mention of the assertion that is being made today! So what information has come to light that would prompt this sort of assessment?
I am not suggesting that the research analysts at this reputable bank are being malicious but I do feel, very strongly, that issuing blase' statements is not conducive to the functions of a research analyst. After all we are not talking of an increase of say 10% which can be said to have happened in the normal course of business. In effect the suggestion is that the exposure to Dubai Inc is well over 120% more than was known to them or the market a few weeks back. This is where I think there are two options when I read such reports, a. press the delete button, or b. apply some common sense (which could be uncommon these days) and see is there any logic to this sort of thinking.
Clearly I took the second course. However, this asserts my position a few weeks back that it is time that a white paper is issued by Dubai Inc on the debts, the assets and that will clear up the air. This has, willy nilly, become a public matter through the way such reports have emerged in the media. This therefore needs a clear and coherent response from the right circles. I agree that bloggers like me can only speculate on the matter at hand, but we can use logic.
In a nutshell I find the nature of this report on the debt from EFG Hermes to be speculative in nature and I do believe that they owe it to the audience to explain themselves. Simply to assert that this could well be on account of bilateral loans from the banks which might not be reported is a rather serious accusation. I would presume the UAE Central Bank and the Auditors of the banks, all of whom are well reputed professionals, could hardly have sat by quietly eating their homous oblivious to any new lending spree in to Dubai Inc. I am in the consulting business and know for sure that new debt of Dubai Inc or most even well known companies is not on offer these days. Banks have hunkered down and just preserving themselves for the moment (not necessarily the best strategy in my opinion) but nevertheless that is how it is.
Ofcourse when the year end balance sheets come out in a few weeks time we will know for sure what the final verdict is. Till then I will reserve judgment and simply say that this report needs validation, and EFG Hermes may have got this one wrong.
In addition, the local banks also have have massive deposits from the government entities and this is a major part of their float that comes to them and is a key part of the interest margin that they earn.
At the time of the Dubai World announcement in November 2009 the total debt estimated, which includes obligations to suppliers and contractors, was around $82 billion. Yes new obligations were taken with the Central Bank and the recent Abu Dhabi assistance which would not, in theory change the position of the over all obligation. Assume that of the $25 billion raised from the Central Bank and the Abu Dhabi assistance, about 75% was used to retire debt and the balance kept in reserve for operations or other maturing obligations, then even the net effect would be that the obligations would go up to US$88 billion.
How this can suddenly be considered a having increased to US$130-170 billion is baffling to me. I have always assessed that of the $82 billion about $60 billion is bank loans or bonds issued in the market and the balance $ 22 billion is creditors like consultants, contractors and service providers. A number of these creditors had either agreed or willing to agree to a reduction in their amounts in exchange for a definite payment plan.
I can buy the argument that if all the grandiose plans that were underway in Dubai were to continue at the same pace as they were in the early part of 2008 then indeed one can argue that the debt obligations of Dubai Inc would have mushroomed. Whether they would have been to the extent of $130-170 billion is a moot question. Intersestingly a couple of weeks back EFG Hermes published a report on the UAE banks and had made not any mention of the assertion that is being made today! So what information has come to light that would prompt this sort of assessment?
I am not suggesting that the research analysts at this reputable bank are being malicious but I do feel, very strongly, that issuing blase' statements is not conducive to the functions of a research analyst. After all we are not talking of an increase of say 10% which can be said to have happened in the normal course of business. In effect the suggestion is that the exposure to Dubai Inc is well over 120% more than was known to them or the market a few weeks back. This is where I think there are two options when I read such reports, a. press the delete button, or b. apply some common sense (which could be uncommon these days) and see is there any logic to this sort of thinking.
Clearly I took the second course. However, this asserts my position a few weeks back that it is time that a white paper is issued by Dubai Inc on the debts, the assets and that will clear up the air. This has, willy nilly, become a public matter through the way such reports have emerged in the media. This therefore needs a clear and coherent response from the right circles. I agree that bloggers like me can only speculate on the matter at hand, but we can use logic.
In a nutshell I find the nature of this report on the debt from EFG Hermes to be speculative in nature and I do believe that they owe it to the audience to explain themselves. Simply to assert that this could well be on account of bilateral loans from the banks which might not be reported is a rather serious accusation. I would presume the UAE Central Bank and the Auditors of the banks, all of whom are well reputed professionals, could hardly have sat by quietly eating their homous oblivious to any new lending spree in to Dubai Inc. I am in the consulting business and know for sure that new debt of Dubai Inc or most even well known companies is not on offer these days. Banks have hunkered down and just preserving themselves for the moment (not necessarily the best strategy in my opinion) but nevertheless that is how it is.
Ofcourse when the year end balance sheets come out in a few weeks time we will know for sure what the final verdict is. Till then I will reserve judgment and simply say that this report needs validation, and EFG Hermes may have got this one wrong.
Sunday, January 17, 2010
Dubai World: Debt Trading
In mature financial markets debt trading is a normal activity and provides depth and liquidity to the market. It allows lenders to lighten their position, add on new better spread business and indeed creates a secondary market that is conducive to the financial system. Generally debt traded is securitized paper, i.e. bonds and notes, and there is niche market for syndicated debt obligations, or bilateral debts. It is this second market where the bulk of the trading is done on a bi-lateral basis and the scope and coverage of debt varies from sovereign debt, both of a good quality and troubled debt, to corporate debt. Some astute operators actually make a good amount of money in dealing with this debt.
The report, whether press speculation or not, that some of Dubai World's debt is being traded now comes with mixed feelings to me. In normal circumstances I would agree this is a healthy thing. At the worst it suggests that some of the debt holders are getting frustrated with the progress on the restructuring of the debt. However, as the report suggests, for the moment it is smaller players, i.e. smaller international banks, who are getting rid of their positions, and this is something I would have expected much earlier. Indeed, in the period between Nov 25, 2009 and December 14, 2009 (when the Sukuk was paid) there was allegedly a good amount of trading in the secondary market.
I had in a previous blog mentioned what I would do if I was handling the Dubai World crisis, (not that I would be asked), and I would just relate that to this piece of news now. What is needed most of all is that Dubai World puts into place measures for confidence building and these would include seeing that are the real issues that are holding up an agreement with the banks. I imagine banks wanting interest servicing and structuring of the new debt to be linked. The report that the debt is offered at 70% of face value is a bit troubling because it might suggest that the negotiations may be surrounded by talks of a 'hair cut' on the principle amount. If indeed the debt is traded out then this complicates matters and a new creditor has to enter into the negotiations, who may either negotiate harder or just be adroit in his position; and we all know it just takes one bad egg to spoil an omellette. I believe that at this stage there should be no talk of 'haircuts' on the principal debt it unnecessarily bargains a short term gain for a loss of reputation that cannot be afforded to be lost.
I also would think that this debt trading is perhaps a signal from some lenders to simply complicate matters by throwing in the towel, cutting their losses and letting a new set of players deal with this. All this would mean further delays.
On the other hand Dubai World had asked till April 2010 to agree new terms with the lenders, so in a sense there is time, and yet in the scheme of how the world is that is not a great deal of time. So for the moment my own guess is this debt trading is a signal for all parties to hunker down and come to a broad agreement as quick as is possible, which will then allow time for the documentation to fall into place. I am sure that in the end there will be a successful resolution to this matter and as much as it it needs time it also needs focus and clarity on the broader issues that one has to deal with.
I personally feel in the current situation the news that the debt is being offered for trading cannot be all that good. However, it might be just the news that is needed to get things moving forward.
The report, whether press speculation or not, that some of Dubai World's debt is being traded now comes with mixed feelings to me. In normal circumstances I would agree this is a healthy thing. At the worst it suggests that some of the debt holders are getting frustrated with the progress on the restructuring of the debt. However, as the report suggests, for the moment it is smaller players, i.e. smaller international banks, who are getting rid of their positions, and this is something I would have expected much earlier. Indeed, in the period between Nov 25, 2009 and December 14, 2009 (when the Sukuk was paid) there was allegedly a good amount of trading in the secondary market.
I had in a previous blog mentioned what I would do if I was handling the Dubai World crisis, (not that I would be asked), and I would just relate that to this piece of news now. What is needed most of all is that Dubai World puts into place measures for confidence building and these would include seeing that are the real issues that are holding up an agreement with the banks. I imagine banks wanting interest servicing and structuring of the new debt to be linked. The report that the debt is offered at 70% of face value is a bit troubling because it might suggest that the negotiations may be surrounded by talks of a 'hair cut' on the principle amount. If indeed the debt is traded out then this complicates matters and a new creditor has to enter into the negotiations, who may either negotiate harder or just be adroit in his position; and we all know it just takes one bad egg to spoil an omellette. I believe that at this stage there should be no talk of 'haircuts' on the principal debt it unnecessarily bargains a short term gain for a loss of reputation that cannot be afforded to be lost.
I also would think that this debt trading is perhaps a signal from some lenders to simply complicate matters by throwing in the towel, cutting their losses and letting a new set of players deal with this. All this would mean further delays.
On the other hand Dubai World had asked till April 2010 to agree new terms with the lenders, so in a sense there is time, and yet in the scheme of how the world is that is not a great deal of time. So for the moment my own guess is this debt trading is a signal for all parties to hunker down and come to a broad agreement as quick as is possible, which will then allow time for the documentation to fall into place. I am sure that in the end there will be a successful resolution to this matter and as much as it it needs time it also needs focus and clarity on the broader issues that one has to deal with.
I personally feel in the current situation the news that the debt is being offered for trading cannot be all that good. However, it might be just the news that is needed to get things moving forward.
Tuesday, January 12, 2010
Dubai World: Some free advice.
Not being an insider, or otherwise in the know of what is happening between the lenders and Dubai World I am in a sense handicapped as to how to approach the issue of offering some unsolicited advice. At the outset therefore this attempt may well be scuttled as 'un-needed' but being a well wisher of Dubai and the UAE and conscious of the delicacy of the matter I am venturing forth with some advice.
Some of the biggest names in the business world have fallen on hard times, this is part of the financial history we know, and any study of them and their successful come back is based on one truth; an acceptance of the situation and the embracing of a high degree of humility to steer through the crisis. Because one whetted the appetite of bankers eager to lend and in a sense were in control of the situation is now a matter of the past, today its a different set of circumstances and counting friends is as important as cultivating new ones.
If I was Dubai World here is what I would do:
1. Seek a quick and equitable solution with the banks. Make this a priority above all else.
2. Given them the true picture of the health, or lack of it, today and show them the plan over say a five year period of how things are likely to change. Build scenarios, from the conservative to the most optimistic; the truth of what will happen lies in between.
3. Seek their advice where they offer it, and most importantly LISTEN.
4. What Dubai World needs to achieve is to fix the mismatch of its borrowing from the short term to the longer term, but this needs to be matched to a plan and not a simple roll over in a vacuum. Bankers need to know when they will be paid and how?
5. Do not take any confrontational stance, avoid words like 'standstill', 'rebates', 'write offs' and 'discounts'.
6. Do not threaten to seek bankruptcy this is no more an option given that everyone has expressed a public stance of solving the debt issue and remarkable progress has been made, some, ofcourse, with the support from Abu Dhabi.
7. Remember always, and this also applies to banks, that when you negotiate do not put people in the corner, then they act irrationally. A good negotiator keeps the other party in the center of the room so they can see all the exits and options,
8. Make it clear that there can be longer term repayments and these will need the support of the banks if they want to be repaid and allow for accelerated payments if the better, more optimistic scenarios start to unravel.
9. Given the recent two months of focus on these issues, this is no more an issue that ONLY concerns Dubai World, it effects the UAE and indeed even the region. This is the test of credibility and commitment.
10. Always remember that not all banks want this to be a battle of brinkmanship so it does not do good to walk the tight line each time.
For those who think that all the money went into a endless pit in the sand they too must realize that there are assets; land and other assets that Dubai World owns elsewhere. Yes the land is impaired in value, but it has some infrastructure on it and land may go sick for a while but it never dies. Eventually these land values will recover and this is a matter of patience, all that is needed is to realize that when you nurture confidence and do things to build confidence then this helps the recovery process. The world will not remain in a perpetual state of recession and this is also true of Dubai.
It was mentioned somewhere in the press that in January 2010 we would see progress on the restructuring talks between the banks and Dubai World. It is important that this process continues and information is made more available that indeed such meetings may well be going on. But get the news out that there is a dialogue; a much better message then people guessing what is going on.
Over all we must remember that indeed this a matter that can be resolved, the banks want it resolved and so does Dubai World. It is now a question of finding out what will be the meeting place of this resolve. This is a much better place to be in than neither side wanting to negotiate, yet there has to be give and take. The circumstances dictate that and demand that. Pride, on either side of the table should be put aside, as must the opinions of lawyers who may prefer to be pit bulls wanting to fight rather than legal counsels assisting in an equitable solution.
I believed that the Sukuk that started this whole saga would be paid and it was. I also believe that a restructuring will happen, even though at times it might seem everyone has hit a brick wall and tension will heighten. The truth is that everyone knows too much is at stake for it not to happen.
Some of the biggest names in the business world have fallen on hard times, this is part of the financial history we know, and any study of them and their successful come back is based on one truth; an acceptance of the situation and the embracing of a high degree of humility to steer through the crisis. Because one whetted the appetite of bankers eager to lend and in a sense were in control of the situation is now a matter of the past, today its a different set of circumstances and counting friends is as important as cultivating new ones.
If I was Dubai World here is what I would do:
1. Seek a quick and equitable solution with the banks. Make this a priority above all else.
2. Given them the true picture of the health, or lack of it, today and show them the plan over say a five year period of how things are likely to change. Build scenarios, from the conservative to the most optimistic; the truth of what will happen lies in between.
3. Seek their advice where they offer it, and most importantly LISTEN.
4. What Dubai World needs to achieve is to fix the mismatch of its borrowing from the short term to the longer term, but this needs to be matched to a plan and not a simple roll over in a vacuum. Bankers need to know when they will be paid and how?
5. Do not take any confrontational stance, avoid words like 'standstill', 'rebates', 'write offs' and 'discounts'.
6. Do not threaten to seek bankruptcy this is no more an option given that everyone has expressed a public stance of solving the debt issue and remarkable progress has been made, some, ofcourse, with the support from Abu Dhabi.
7. Remember always, and this also applies to banks, that when you negotiate do not put people in the corner, then they act irrationally. A good negotiator keeps the other party in the center of the room so they can see all the exits and options,
8. Make it clear that there can be longer term repayments and these will need the support of the banks if they want to be repaid and allow for accelerated payments if the better, more optimistic scenarios start to unravel.
9. Given the recent two months of focus on these issues, this is no more an issue that ONLY concerns Dubai World, it effects the UAE and indeed even the region. This is the test of credibility and commitment.
10. Always remember that not all banks want this to be a battle of brinkmanship so it does not do good to walk the tight line each time.
For those who think that all the money went into a endless pit in the sand they too must realize that there are assets; land and other assets that Dubai World owns elsewhere. Yes the land is impaired in value, but it has some infrastructure on it and land may go sick for a while but it never dies. Eventually these land values will recover and this is a matter of patience, all that is needed is to realize that when you nurture confidence and do things to build confidence then this helps the recovery process. The world will not remain in a perpetual state of recession and this is also true of Dubai.
It was mentioned somewhere in the press that in January 2010 we would see progress on the restructuring talks between the banks and Dubai World. It is important that this process continues and information is made more available that indeed such meetings may well be going on. But get the news out that there is a dialogue; a much better message then people guessing what is going on.
Over all we must remember that indeed this a matter that can be resolved, the banks want it resolved and so does Dubai World. It is now a question of finding out what will be the meeting place of this resolve. This is a much better place to be in than neither side wanting to negotiate, yet there has to be give and take. The circumstances dictate that and demand that. Pride, on either side of the table should be put aside, as must the opinions of lawyers who may prefer to be pit bulls wanting to fight rather than legal counsels assisting in an equitable solution.
I believed that the Sukuk that started this whole saga would be paid and it was. I also believe that a restructuring will happen, even though at times it might seem everyone has hit a brick wall and tension will heighten. The truth is that everyone knows too much is at stake for it not to happen.
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